Interest Rate Index

In general, an interest rate index is any index that tracks interest rates. (It's a pretty straightforward name, like an eye doctor named Dr. Peepers).

Banks and other financial institutions will look at an interest rate index to determine what rates they should charge borrowers. Without knowing the prevailing interest rates, a bank might undercharge and end up not earning enough from its loans for the current environment. To avoid this, the bank will rely on the index to provide a guide to the current overall rates.

The measures are compiled using various signals of the rate situation. LIBOR provides a widely followed example of an interest rate index.